Employing a family member

Malthusian

JohnDorian said:

Which cases would these be? I’d be very interested to read them and more about how HMRC have acquired the power to dictate how much a business owner pays him/herself and who they can employ.

S34 Income Tax (Trading and Other Income) Act 2005 and S54 Corporation Tax Act 2009. See BIM37000.

A business owner is entirely free to pay his wife £200,000 a year for sitting around looking pretty if he likes, but he can't deduct that salary for corporation tax purposes under the wholly and exclusively rule.

JohnDorian

Malthusian said:

JohnDorian said:

Which cases would these be? I’d be very interested to read them and more about how HMRC have acquired the power to dictate how much a business owner pays him/herself and who they can employ.

S34 Income Tax (Trading and Other Income) Act 2005 and S54 Corporation Tax Act 2009. See BIM37000.

A business owner is entirely free to pay his wife £200,000 a year for sitting around looking pretty if he likes, but he can't deduct that salary for corporation tax purposes under the wholly and exclusively rule.

I’m aware of that but the question is - can he pay his wife? What you have linked to has no bearing on that.

In all reality, he can pay his wife and give her a role along with a job description and work to do and avoid any of the irrelevant issues mentioned in this thread.

Users on here should stop throwing the word ‘illegal’ around. I am yet to see any link to a case where someone has broken the law by employing a family member.

Malthusian

JohnDorian said:

I’m aware of that but the question is - can he pay his wife? What you have linked to has no bearing on that.

The OP has said he wants to reduce tax, and paying his wife a salary only achieves that end if she is doing some actual work for the benefit of the business, as per the wholly and exclusively rule.

In all reality, he can pay his wife and give her a role along with a job description and work to do and avoid any of the irrelevant issues mentioned in this thread.

Exactly, no argument there.

Users on here should stop throwing the word ‘illegal’ around. I am yet to see any link to a case where someone has broken the law by employing a family member.

You would have to be a complete idiot to break the rules as a salary of £8k a year is easy to justify, and to get income in the spouse's hands above that level you can make them a shareholder and pay them dividends, which is likely to be more tax-efficient as corporation tax + dividend tax is usually cheaper than income tax + NI contributions. If someone was a big enough idiot to break the rules, there would almost certainly not be a court case as they would just pay up.